INSURANCE FRAUD is rising fast, and now adds as much as 10p in the pounds 1 to the premiums we all pay. The cost of fraudulent claims on household, motor and personal-accident policies reached a dismaying pounds 645m in 1998, up 8.4 per cent on the previous year's pounds 595m. Now the Association of British Insurers plans a press and leaflet campaign to combat increasingly "devious and organised" insurance cheats.

This sort of fraud is frequently seen as a victimless crime. ABI spokesman Vic Rance says otherwise honest people are often willing to boost the value of an insurance claim because they think the insurers can easily afford it. In fact, Rance argues, it is the honest policyholders who ultimately pay the price.

"Over a period of time, what we pay out in fraudulent claims, we have to get in as increased premiums," he says. "We're really just administering a pot of money."

The types of insurance hardest hit by fraud are motor insurance and personal accident, where there is plenty of scope for ill-defined injuries or mysterious damage. Rance says: "Whiplash injury is the great problem area. It's very easy to pretend you've got it and rather more difficult to show that you haven't."

Travel insurance is another prime area for fraudsters. A recent survey by specialist holiday insurers Home & Overseas concluded that as many as half the claims received for loss of personal possessions are either inflated or entirely bogus.

There are plenty of weapons that insurers can bring to bear in the fight against fraud. The Claims and Underwriting Exchange central database lets insurers routinely examine the whole industry's claims records to help throw up suspicious links between one claim and another.

Low-tech methods have their place too. Norwich Union says it is often prompted to further investigate a claim when the policyholder cannot say when or where the supposedly stolen goods were bought, is reluctant to meet the company's investigators or turns out to be word-perfect on the policy's most crucial clauses.

But insurers admit privately that they actually prosecute fraudsters only in the very largest cases. One claims manager, who asked not to be named, says: "It's a business we're running here. If we were going to prosecute someone who has defrauded us for a small amount of money, it really wouldn't be worth our while."

Would-be fraudsters can often be persuaded to drop a claim when confronted with the evidence, but this leaves them no worse off than they were when they started. Norwich Union Healthcare claims manager Marcus Makin says: "We prefer not to go to court, but we will if necessary."

THREE FRAUDULENT CLAIMS

MOT likely: Norwich Union received a motor claim from a customer whose policy was valid only while his car had a current MOT. It was clear that the date on his MOT certificate had been changed. Questioned by an NU investigator, the man claimed a burglar must have broken into his house, taken the MOT certificate, changed the date, replaced it and then left without stealing anything. Asked to reconsider the likelihood of this, the policyholder withdrew his claim.

Pig ignorant: A couple made a claim on their travel insurance after missing their flight home. They were careful not to mention that the wife had actually been banned from boarding the plane because she had a piglet in her hand-luggage.

Cheap trick: A Birmingham man made a claim of pounds 2,750 for a lost Rolex watch. Rolex registers all such watches under the buyer's name, but investigations showed no record of this man ever owning one. The watch was a fake, bought in Singapore for about pounds 2.99.

THREE WRONGLY REJECTED ONES

Strings attached: An insurer refused to pay a household-contents claim when a guitar was stolen from the family car. The Insurance Ombudsman ruled this was "contrary to normal expectation" and the company had to pay up.

Words apart: An insurer refused to pay a household-contents theft claim on the grounds that the policy's wording had been changed to exclude such claims when the policy was renewed two years earlier. The IO ruled that the new wording had not been sufficiently drawn to the policyholder's attention and the company then agreed to deal with the claim.

Card sharp: An insurer refused a policyholder's claim on his credit-card- payment insurance on the grounds that the illness which had forced him to stop work had existed before the policy started. The IO ordered the company to deal with the claim.